Financial Times

Urgent support for small garment exporters
Small and medium garment exporters who provide employment for a significant number of people are to be given urgent support to upgrade their manufacturing standards to meet the tough competition expected with the phasing out of textile quotas by 2005.

As an initial step, support will be given to upgrade 75 firms in a project estimated to cost Rs. 570 million under the overall strategy to modernize the apparel sector drawn up by the industry task force that is now part of the 'Regaining Sri Lanka' initiative.

Prime Minister Ranil Wickremesinghe, at a recent meeting with the apparel industry task force, wanted the SME (small and medium enterprise) sector in the apparel industry to be supported on a priority basis, said Tuly Cooray, secretary general of the Sri Lanka Apparel Exporters' Association.

"Under the SME initiative the industry is trying to upgrade a group of small firms by improving their infrastructure and compliance with buyers' requirements," he said.

"Their technology too will be modernized because buyers need manufacturers to have certain machinery in order to place orders." The industry is also trying to see if these small firms could be clustered together or affiliated to larger firms in order to help them survive the quota-free era, he said.

"Most of them started as SMEs behind the back of a house or in a small building and have not been able to modernize. Now, buyers insist on manufacturers meeting certain basic standards and better working conditions," Cooray said.

"So we need to bring these firms up to standard without which they can't even talk to buyers who are now more conscious of issues like social responsibility."

The government is keen to support smaller firms in the industry because of the social implications that would arise if they go out of business when they lose the protection provided by the quota system.

In the garments industry a few big manufacturers account for the bulk of exports while a large number of small and medium scale exporters who provide employment for a large number of people account for the rest.

"We're now exploring funding sources," Cooray said.

The industry was not looking for a "dole out" but some sort of protection until the firms are brought up to a certain standard and become commercially viable after which they will not need government support, he said.

"There could be a serious problem unless they are looked after," he added.

The strategy to modernize the apparel industry also includes an initiative to improve backward integration by creating a better supply base with the setting of up fabric mills and accessory suppliers.

The industry is also trying to improve apparel design skills of those working in the industry and as well as technology and enter into trade deals with key importers like the US and the EU to get preferential access for Sri Lankan garment exports.

Lanka IOC petrol sheds soon
The formal launch of Lanka IOC (Pvt.) Ltd, the local unit of Indian Oil Corporation, will be held on May 28 along with the opening of the first refurbished retail outlet.

Lanka IOC will have its office on the 20th Floor, West Tower, World Trade Centre while the first LIOC petrol shed will be at Slipto Agencies, Maligawatta Road.

The official refurbishment work on the IOC's China Bay oil tank farm in Trincomalee will be launched on May 29, said M. Nageswaran, Managing Director of Lanka IOC.

The Indian Oil Corporation has taken over part of the Ceylon Petroleum Corporation network of petrol sheds and the China Bay oil tank farm under an agreement between the two governments.

Ups and downs for Watawala Plantations
Watawala Plantations, manufacturer and marketer of "Zesta," one of the top value-added tea brands in the country, has reported a record turnover of nearly Rs. 2 billion for the year ended March 31, 2003, but incurred a net loss of Rs. 25.9 million due to a combination of factors that impacted on the plantation economy.

The company's annual report last week, reported revenue growth of 20.5 percent to Rs. 1999.337 million, boosted by increased production of tea, improved rubber prices in the last quarter of the year, higher contributions from crude palm oil and kernel oil, and substantial contributions from the company's branded teas.

Additionally, revenue growth more than doubled from exports of tea under a tripartite contractual arrangement involving the prestigious Tetley Group of UK, Tata India and Watawala, from Rs. 134.2 million in 2001-02 to Rs. 292.6 million in 2002-03.

These gains, however, were offset by lower than anticipated tea prices, and increased costs of production due to an upward revision of worker wages which cost the company an additional Rs. 90 million over a nine-month period, increased fuel and power costs, a hike in fertilizer prices and other inflationary pressures.

The company said although revenue from tea was up 6.8 percent to Rs. 1.371 billion in the year under review, gross profits from the tea segment fell by nearly Rs. 86 million or 52.3 percent, resulting in an operating loss of Rs. 15.46 million. In contrast the rubber segment performed better, converting a loss of Rs. 20 million in 2001-02 to a gross profit of Rs. 7.47 million.

Commenting on the results, Watawala Plantations Chairman G. Sathasivam has cautioned that the financial impact of the collective wage agreement that came into effect from July 2002 is quite extensive. "Together with the upward revision in gratuity provision, the financial impact was Rs. 90 million," he said, pointing out that, "While management in the industry is sensitive and sympathetic to the cause of employee welfare, it is also concerned that regular increases in wages that are not geared to gains in productivity, will lead to a steady decline in profitability and thus strike at the very root of the viability of the industry."

Guardian Group seeks management involvement
The Guardian Group, consisting of quoted investing companies which are part of the Carson's group, is looking at "management involvement" in companies it invests in once it acquires a "significant" holding.

The Group, comprising of The Ceylon Investment Company Ltd and The Ceylon Guardian Investment Trust Ltd together with The Rubber Investment Trust Ltd, is continuing its strategy of increasing exposure to blue chip firms.

It seeks to invest in firms that are "professionally managed and committed to looking after shareholder interests as a matter of priority", according to the Carson annual report for the year ended March 31, 2003.

The Guardian Group made a profit before tax of Rs. 293 million down from Rs. 887 million the year before. Its blue chip quoted equity portfolio traded on the Colombo Stock Exchange is worth about Rs. 2.4 billion. Key shareholdings are Ceylon Cold Stores - 17.46 percent, Hayleys - 7.79 percent, John Keells Holdings - 3.68 percent, John Keells Ltd - 10.89 percent, Union Assurance - 24 percent.

Mundogas barge allowed into Galle
A barge loaded with 1,850 MT of LPG from Mundogas of the Philippines, denied entry into Galle harbour on safety grounds, has finally been allowed in, port authorities said.

The LPG was transferred into the barge Formentera from a gas carrier in mid-sea two weeks ago after the Sri Lanka Ports Authority refused permission for the vessel to enter Galle.

Master Divers chief Ariyaseela Wickramanayake, who also heads the local Mundogas operation, maintained he has complied with the rules and provided all certification required by the SLPA. "We have given all the documents they need and provided $5 million insurance cover," he said.

The SLPA has rejected charges that it was trying to block Mundogas, saying the company had delayed submitting relevant insurance, fire fighting and security certificates issued by internationally recognized organizations that were required for it to commence the gas filling operation in Galle.

Wickramanayake charged that the whole issue had been blown out of proportion because Shell and Laugfs Lanka Gas, which now dominate the gas market, feel threatened by his attempt to provide cheaper LPG.

He said he will sell gas for Rs. 490 a cylinder and that with oil prices falling will lower his price to Rs. 350 with the next shipment.

Meanwhile, the Appeal Court has issued an interim order staying a directive from the Consumer Affairs Authority (CAA) asking all LPG traders and manufacturers to accept, refill and sell gas in any cylinders brought by customers.

The court order was in response to action filed by Shell Gas Lanka against the CAA, Mundogas and Laufgs challenging the directive.

Foreign funding for LOLC
Lanka ORIX Leasing Co. Ltd (LOLC) the pioneer leasing company of Sri Lanka, recently became the first private sector organization in Sri Lanka to receive funding from the OPEC Fund.

Although the Fund has been involved in development activities for over two decades, the loan of $ 5 million to LOLC represents OPEC Fund's first private sector operation in Sri Lanka.

LOLC, which pioneered leasing in Sri Lanka, has a long list of 'firsts' to its credit. It was the first to introduce Debt Factoring to Sri Lanka, the first to Issue Asset Backed Debentures, the first to transact an Interest Rate Swap, the first to issue Zero Coupon Bonds, the first to issue Securitized Notes, the first to execute an Interest Rate Cap Agreement, the first to get a Short Term Rating, the first to execute a Stock Borrowing and Lending transaction, the first non-bank financial institution to be included under the Indian Line of Credit and the first non-bank financial institution to be included under the ADB Funded Tea Development Project scheme.

and the first company to win the first prize for the Best Annual Report in the Leasing Category.

During each of the past three years, LOLC has recorded the highest ever profits in its 23-year history. Directors of the company are Y. Ishida (chairman) Ishara Nanayakkara, Dharmasiri Pieris, M.T.L. Fernando, Ravi Fernando, Ms. K.U. Amarasinghe, T.H.M. Wickramasinghe, Y. Miyauchi and M.P.V. Raaj de Silva.(Managing Director).

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